Post-IPO Facebook may get more D.C. scrutiny

As Facebook angles to take the company public in pursuit of raising $5 billion, the company may be upping the ante for more scrutiny from Washington.

Even before filing with the Securities and Exchange Commission on Wednesday, Facebook’s bellwether status in the age of the social Web had prompted review from members of Congress, not to mention a 20-year proposed settlement of charges from the FTC that the social network violated user privacy.

Those policy challenges — and the threat of new regulation — may place Facebook more under Washington’s microscope.

“Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters,” Facebook noted as a risk factor in its so-called S-1 filing. The word “privacy,” in particular, appears 35 times in the document.

“Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.”

On the way to Wednesday’s announcement, Facebook had faced a rocky regulatory road. New features for sharing — and approaches to how that data is collected and displayed — triggered serious review from regulators, both in Washington and abroad.

The biggest challenge to face the company was a November 2011 settlement brokered with the FTC, a consent decree that could soon see Facebook subject to 20 years of privacy audits and a host of other remedies. FTC regulators took action in response to a slew of “unfair and deceptive” practices by the company in its collection and handling of users’ most sensitive information.

Facebook noted that settlement in its S-1 filing, as well as its recent scrutiny by regulators in Ireland. And the company emphasized its concerns about new online privacy regulation — rules that could affect the way the site collects and handles its users’ information, not to mention its relationships with third-party app developers and advertisers.

On the horizon, Facebook listed as a risk the privacy law update under consideration in Europe, which could impose new burdens on all companies to seek explicit consent before unveiling new features while levying fines on firms that run afoul of the law. In the United States, Facebook noted similar privacy regulations at both the federal and state level could affect the company.

Companies that seek to go public must detail at length their potential risk factors — and privacy is always a concern for any tech company, including those smaller than Facebook. But it was in part those privacy pitfalls that motivated Facebook to engage the Washington crowd in the months before Wednesday’s filing.

Once a one-man shop, Facebook’s Washington D.C. office has grown exponentially, snatching up key voices from both parties that have deep connections to the current and previous White House. The growth brought Facebook’s first $1 million lobbying year in 2011.

It was only in September that Facebook set up its PAC, and already, company executives have pumped $170,000 into its coffers. To many, it’s a sign the company is ready to be a political player.

“It’s grabbing the reins of the traditional tools used by companies and other special interest groups to make sure their voice is heard in Washington,” said Michael Beckel, spokesman for the Center for Responsive Politics, about the filing. “In terms of the tech and computer industry, several hundred thousand dollars can go a long way.”

Plenty of challenges loom ahead for the company: It must navigate patent lawsuits and reforms to the copyright system, and grapple with countries that block access to its website or censor some user content.

More than that, Facebook is among a new crop of Internet firms that had avoided IPOs but have allowed employees to trade shares on secondary markets. In fact, SEC regulations may have forced the company’s decision to go public: The firm is believed to have recently crossed the 500 shareholders threshold, the point at which it must begin making public financial disclosures.

In its filing, Facebook even noted the “Enforcement Division of the Securities and Exchange Commission has been conducting an inquiry into secondary transactions involving the sale of private company securities as well as the number of our stockholders of record,” and that the company fielded both formal and informal requests for more information.

For now, industry observers worry it’s a sign the public market has lost its appeal. By remaining private, firms may be growing at a slower rate, some say. With 3,000 employees, Facebook, following its IPO, may be poised for accelerated job growth.

That’s why some see Facebook’s IPO itself as a market bellwether.

“Facebook in a very short period of time has become not only one of the most important tech companies, but a social phenomenon,” said Rey Ramsey, leader of TechNet. “The success of this impending IPO is a reflect of both of these things”